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attributable to activities not engaged in for profit. Section
183(b)(1), however, provides that deductions that are allowable
without regard to whether the activity is engaged in for profit
shall be allowed. Section 183(b)(2) further provides that
deductions that would be allowable only if the activity were
engaged in for profit shall be allowed, “but only to the extent
that the gross income derived from such activity for the taxable
year exceeds the deductions allowable by reason of” section
183(b)(1). Accordingly, $892 of the expenses incurred in
petitioner’s fishing activity should have been allowed as an
offset to the $892 of income received from the activity.
Section 183(c) defines an “activity not engaged in for
profit” as any activity other than one for which deductions are
allowable under section 162 or under paragraph (1) or (2) of
section 212 for the taxable year. The standard for determining
whether the expenses of an activity are deductible under either
section 162 or section 212(1) or (2) is whether the taxpayer
engaged in the activity with the “actual and honest objective of
making a profit”. Ronnen v. Commissioner, 90 T.C. 74, 91 (1988);
Dreicer v. Commissioner, 78 T.C. 642, 645 (1982), affd. without
opinion 702 F.2d 1205 (D.C. Cir. 1983). While a reasonable
expectation of profit is not required, the taxpayer’s profit
objective must be bona fide. Hulter v. Commissioner, 91 T.C. 371
(1988); sec. 1.183-2(a), Income Tax Regs. Whether a taxpayer had
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Last modified: May 25, 2011